APRA ‘protects’ banks; time for bank regulation that protects people

Outgoing chairman of the Australian Securities and Investments Commission (ASIC) Greg Medcraft has again taken aim at the Australian Prudential Regulation Authority (APRA) for putting the banks above the security of Australians.

Citizens Electoral Council of Australia

Media Release Wednesday, 15 November 2017

Craig Isherwood‚ National Secretary

PO Box 376‚ COBURG‚ VIC 3058

Phone: 1800 636 432

Email: This email address is being protected from spambots. You need JavaScript enabled to view it.

Outgoing chairman of the Australian Securities and Investments Commission (ASIC) Greg Medcraft has again taken aim at the Australian Prudential Regulation Authority (APRA) for putting the banks above the security of Australians.

Medcraft’s statements demonstrate how dangerous it is for the federal government to give bank regulator APRA sweeping powers to resolve a banking crisis, including powers that could be used to confiscate—“bail in”—savings deposits.

And it’s not an academic exercise, because a banking crisis is looming on the back of the collapsing housing bubble. On 6 November high-profile real estate agency McGrath’s shares plunged 20 per cent when the company downgraded its outlook based on the slowdown in the market and reduced number of homes for sale. Real Estate Institute of Australia (REIA) president Malcolm Gunning predicted 25 per cent of real estate agents in Sydney and Melbourne could lose their jobs. On the conservative REIA figures, which are taken from the 2011 census, that will be more than 5,000 in Sydney and 3,400 in Melbourne. Such job losses will exacerbate the collapse as those unemployed agents struggle to service their own mortgages as they seek other jobs, not to mention the thousands of builders, tradesmen and labourers who will also lose work.

Thorney Investment Group chairman Alex Waislitz told the 8 November Australian that Australia’s residential and commercial property could be “10-20 per cent overvalued”. This is a disaster looming over the banks, which have ploughed more than 60 per cent of their lending into properties at over-inflated prices. When the housing markets in the USA, UK, Ireland and Spain collapsed in 2008, they pulled down the banking system with them.

That’s why it is urgent that Australia have banking regulations that protects Australians and their savings from the fall-out of a banking collapse, namely the Glass-Steagall separation of deposit-taking banks from speculation and all other financial services. Glass-Steagall is the name of the US law that was put in place in 1933 during the Great Depression, which averted any systemic banking crisis for the next 66 years. Its repeal in 1999 led to an explosion of speculation that caused the global financial crisis just nine years later. A Citizens Electoral Council petition will be tabled in Parliament at the end of the month that calls for Australia’s Too-Big-To-Fail banks to be broken up along Glass-Steagall lines, and the CEC has presented to Parliamentarians a formalproposal for a Glass-Steagall separation of Australia’s banking system.

In stark contrast to the way Glass-Steagall protects people, APRA’s track record shows that it will put the survival of the banks first, and in a crisis justify all kinds of extreme measures to keep them afloat. Here’s how Medcraft described to the 13 November Australian Financial Review the way APRA operates:

“We co-operate very well at the top level but I think sometimes there’s an obvious potential conflict between the role of APRA and the role of ASIC. The role of APRA is to protect the entity, the bank, and ASIC’s role is to protect consumers and investors. Sometimes what may be good for an entity and its profitability and its soundness may not be particularly good for consumers and investors.” (Emphasis added.)

Medcraft’s example is the $43 billion in complex hybrid securities that APRA has allowed the major banks to sell to unsuspecting “mum and dad” retail investors, over ASIC’s disapproval (although it must be said that Medcraft only voiced his objections as he was on the way out). The products, also known as “bail-in” bonds, have triggers buried in the fine print of their 100-odd pages of prospectus that convert the bonds into worthless shares if the banks start to fail. The investors are set up to absorb the banks’ losses, i.e. to go bankrupt so their bank doesn’t. Hybrids are so risky that the Bank of England forbids British banks from selling them to retail investors in the UK, but APRA has allowed Australia’s big banks to prey on hundreds of thousands of self-funded retirees and self-managed superannuants, offering them very high interest rates to lure them into investing in a product that can suddenly become worthless.

Stop the APRA bill

As the Citizens Electoral Council warned in its 8 November release “Questions MPs must ask before they vote on the APRA crisis management—‘bail-in’—bill”. the APRA bill gives APRA sweeping powers that could be used in a future banking crisis to bail in deposits. MPs assume that APRA will be responsible to the Parliament in the way it uses these powers. As one Labor MP wrote to a constituent: “APRA is an Australian government authority that is accountable to the government of Australia and the parliament of Australia and thence through parliament to the people of Australia.” Yet this is not how APRA or its superiors at the Bank for International Settlements and Financial Stability Board in Basel, Switzerland see it. As specified in the bland, technocratic jargon of the BIS’s Basel

Committee on Banking Supervision’s (BCBS) 2012 “Core Principles for Effective Banking Supervision”, there must be “no government or industry interference that compromises the operational independence of the supervisor”. The reason for this is simple: any bail-in to save banks is extremely unpopular electorally because it ruins thousands of people, as Cyprus and Italy demonstrate, so democratic governments which want to get re-elected must not be allowed to intervene to protect their constituents. In other words, a banking dictatorship.

The Secretary General of the BCBS at the time it issued this “core principle” was Australian Wayne Byres, who is now the chairman of APRA and will be given enormous new powers under the APRA bill!

The choice for Australian MPs is voting for a bill that allows APRA and its BIS/FSB superiors to dictate a bail-in that ruins thousands of Australians in order to cover the gambling losses of the big banks, or adopting the Glass-Steagall “people first” approach of protecting savings deposits by separating the banks from gambling and other risks.

Visit, call or email your MP and Senators today to demand they oppose the APRA bill and put people first.